Let us make some entirely plausible assumptions about the outcome of the general election. Let us assume that the Conservatives attract the largest share of votes, but fall short of a majority either of votes or of seats. Let us assume that Labour comes second or third in terms of the number of votes but might actually win the greatest number of seats, though still well short of a parliamentary majority. And finally let us assume that the Liberal Democrats score well – and perhaps substantially better than was expected at the outset of the campaign – in both votes and seats and, as a necessary consequence, hold the balance of power.

The first issue will be for the Queen and her advisers. In such circumstances, who does Her Majesty ask to form a government? Do her advisers stick to precedent and advise that Gordon Brown, as the incumbent and commanding the greatest number of seats, should get the nod? Or do they pay attention to the pre-election assertion by Nick Clegg that, as a proponent of proportional representation, he would support only the Party leader who had gained the biggest share of the vote?

I suspect that the advisers would initially stick to precedent and that Gordon Brown would be asked to give it a try. I further suspect that, unless he were prepared to give a guarantee of a referendum on electoral reform, his attempt would founder on Clegg’s determination to stick to his guns. The failed attempt could, however, take some time before the failure became definitive.

The Queen would then ask David Cameron to form a government. He would seem to have a better chance of success, being able to argue that he had won the greatest share of votes. Nick Clegg would again try to extract a major commitment on electoral reform, but Cameron would refuse to accommodate him. Clegg would, however, be compelled, for fear of being accused of irresponsibility and of forcing a second and unwanted election on the country, to do some sort of deal to allow Cameron to form a government.

That deal would probably fall short of a formal coalition but might take the form of an undertaking to support the new government on issues of confidence and supply. It might be time-limited, but whether or not the deal included any such formal provision, the issues of how long it might last and of the circumstances in which it might be brought to an end would constitute the real story of the 2010 general election.

The parties to the deal, both Cameron and Clegg, would have clear but conflicting strategic objectives. Both could imagine scenarios which would greatly advance their parties’ interests.

Cameron would hope to emulate the experience of other leaders of minority governments who had used the prestige of government to underpin their electoral appeal and to push on in a second election to achieve an overall majority. Harold Wilson pulled this trick off twice.

But it might not be so easy this time. Cameron has to grapple with urgent and desperate issues. He either begins to deal with them effectively and accepts the pain that will inevitably attend such an enterprise, or he ducks the issues and is easily attacked as failing to attack the country’s all too obvious problems. A year or two into a new Tory government, and the voters could be – one way or another – badly disappointed. The honeymoon this time might be a very short one.

For Nick Clegg, the issues are almost equally daunting. His task will be to pull the plug on the new government at a time when he won’t be accused of irresponsibility and of plunging the country into further electoral turmoil. He will want an issue which will, from both a position of principle and of prospective electoral advantage, allow him to go to the country as the alternative government. He will argue that while he had played his part in providing stable government he could no longer support a Tory-led administration that was heading down the wrong path. But his long-term objective would rest on the assertion that the Lib Dems were now the only party that could both defeat the Tories and form a stable majority government.

It is now 100 years since Labour began its push to supplant the Liberals as the alternative to the Tories. The Conservatives, like the poor, are always with us (and some would argue that there is a causal connection between the two propositions). The perennial question in British politics is as to who will constitute the alternative. Today’s Liberals have their sights on the real possibility of reversing 100 years of history.

William Keegan and Will Hutton do not, I suppose, consult each other as they write their respective pieces for The Observer. If their contributions in this week’s paper are read together, however, they make for a compelling combined message, and one that Gordon Brown and his government would do well to learn and apply.

First, William Keegan’s piece laments (as I do) the opinion polls that reveal the number of voters who believe that, if they are having to tighten their belts, then the government should do likewise. I suppose it is understandable that people should feel, at a visceral level, that the government has got the country into the mess, and should therefore share in the pain that ordinary citizens are suffering. It is nevertheless disappointing that a gut reaction should take such precedence over economic literacy and common sense. It is even more disappointing, though perhaps more to be expected, that these sentiments should be encouraged by those who should know better.

The truth is that government must bear a responsibility not only for allowing the recession to develop but also for the measures needed to counteract it. Governments can and must act to correct market failure in ways that the market, left to itself, cannot. Economies are robust things. They would recover sooner or later without intervention. But – as all but the most purblind now recognise – it is the responsibility of governments to hasten the recovery process, and thereby limit the misery that recession inevitably brings about.
The reason for this is that governments, uniquely, have the ability to counter the inevitable tendency of recessions to feed on themselves. For most actors in the economy, the demands of self-interest mean that, in a recession, they spend less, invest less, cut costs, employ fewer people. Each individual decision taken by companies or businessmen may be – indeed usually is – rational and justified, but the cumulative effect for the economy as a whole is that recession is intensified.
There are those who wish to resist this line of argument. They are so hostile to the very idea of government that they are reluctant to accept that governments should ever have a special role and responsibility. They argue that governments should act (if at all) as though they were individual people or companies. According to this view, governments in a recession should also cut costs, spend less and lay people off, as though they were just like households or businesses. But, given – whether they like it or not – their importance to the level of economic activity, if governments behave like everyone else, the economy is condemned to a deeper and harsher recession than needs be. As Keynes pointed out, only governments have the capacity and the duty to defy market logic. Only governments have the resources to over-ride what would normally be market-based self-interest and to substitute for it the wider interest in getting the economy as a whole moving again. Only governments can afford to live with and fund long-term indebtedness if that is what is required to protect the interests of their shareholders – and that means everyone. You don’t need to be a Keynesian to accept this; all you need is common sense.
At this point, enter Will Hutton. He makes the point that – perhaps belatedly – Gordon Brown and his government have recognised that common sense requires them to use the power of government to fight the recession. As a result, the recession – bad as it is and will yet be – will be shallower and shorter than it would otherwise have been.

In doing this, they have opened up a clear and significant gap between their approach and that of the Tory opposition. As far as we can tell, the Tories would have done nothing, other than wring their hands at the inevitable and growing size of the government deficit – and ironically, that very inactivity is the one thing guaranteed to make the deficit bigger. A longer and deeper recession would mean yet more damage to the government’s finances; a less severe recession, counteracted by judicious government spending, would by contrast bring the deficit under control and limit its size.

Yet, as Will Hutton points out, Gordon Brown gets no credit for his courageous (and surely correct) stand on the responsibilities of government in a recession. It is his opponents who, for reasons of opportunism, prejudice and perhaps sheer ignorance, continue to make the running.

He is not, of course, alone. The right, in the United States, Europe, Australia and New Zealand, continue to exploit public sentiment in order to undermine confidence in the power of government. But surely, for Gordon Brown as for other more enlightened leaders, this is stronger ground on which to fight than the disastrous argument about which party will cut more severely.

I remember a young Gordon Brown who, with an eye for a phrase that was hardly new but nevertheless full of meaning, proclaimed that “good government matters”. That has never been more true than at the recession-ravaged present. Why not say so – again and again and again?

Bryan Gould

27 July 2009.
This article was published in the online Guardian on 27 July.

I surely cannot have been the only reader to stop short mid-sentence at Nicholas Watts’ statement (Guardian, 13 January) that Tony Blair, Gordon Brown and Peter Mandelson had “wrenched Labour out of the wilderness”. The trio may have a number of achievements to their credit but the claim that they saved the Labour Party is – at the very least – open to question. It is precisely this kind of apparently casual but seriously misleading assertion which – unless challenged – can quietly become part of the accepted wisdom. History should not so easily be re-written.

By the time Tony Blair became leader of the Labour Party in 1994, the Labour Party had substantially recovered from the nadir of its fortunes in 1983. That recovery owed a great deal to the leadership of Neil Kinnock. Under Kinnock, the Party had stopped the rot by 1987, had begun to divest itself of outdated policies, and had averted the real risk of falling behind the Liberals and Social Democrats. It had made further strides towards electability by 1992, and lost that election against many predictions only because – despite his substantial qualities – Kinnock could not seal victory by reaching out to that further range of middle-class opinion which had succumbed to the claims of the Tory media that he was nothing but a garrulous working-class boyo.

It is very much to Kinnock’s credit that he recognised this and relinquished the leadership accordingly. Although I had my reservations about John Smith (and would have hoped for a more positive approach to the prospect of government), few can doubt surely that Labour was, under new leadership, heading for a comfortable victory at the next general election.

The reasons for that optimism are, and were, not difficult to substantiate. General elections are almost always lost by the governing party. By 1994, the heyday of Thatcherism had long passed. Mrs Thatcher herself had been deposed by her own party some years earlier because the electorate was increasingly out of sympathy with her extreme views and policies. John Major had won an unlikely victory in 1992 but had failed to convince the electorate that he was made of the right stuff to lead the country.

My own view is that when voters woke on the morning after the 1992 election, they were dismayed to realise that they were faced with another five years of Tory government. From that moment onwards, the die was cast. They were determined to secure a change of government at the next opportunity.

It was certainly a signal achievement of the Blair/Brown/Mandelson “project”, (what later became “New Labour”), to persuade a Labour Party starved of electoral success that only a wholesale abandonment of its values and policies would guarantee victory. But this was a piece of sleight of hand. Not only was aping the Tories not needed; the electorate was actually very clear that it wanted change and a decisive move away from the Thatcherite agenda.

This contention is supported by what actually happened in the 1997 general election. No one would doubt that Tony Blair was an electorally attractive candidate and that his appeal could well have added a margin to the Labour victory. But the real story of the 1997 election was that, after 18 years of right-wing and (especially after the debacle of the Exchange Rate Mechanism) incompetent government, Tory voters were disheartened and stayed at home. It was that lack of commitment, and the recognition that change was inevitable, not the abandonment of Labour principles, that accounted for the “landslide”. If, under a first-past-the-post system, your opponents stay at home, you win big.

The real issue in assessing the role of the Blair/Brown/Mandelson trio in the Labour Party’s history is to ask, not what did they do to bring about election victory (which was largely assured by the time they arrived on the scene), but what did they do with power once the general election had delivered it to them. The answer to this question is much less flattering to them than Nicholas Watts’ claim about their “wrenching Labour out of the wilderness” would suggest.

Every day that goes by makes it clearer that the contribution of New Labour in government has been to provide an unexpected, unwarranted and unnecessary prolongation to the Thatcherite era. New Labour has assiduously followed George Bush in foreign policy and Alan Greenspan in economic policy. On the central question of politics – the relationship between government and the market – New Labour has settled decisively on the side of the “free” market, with the consequences we are now living with. We should be very careful about investing those responsible with encomiums of praise for allegedly saving what is valuable in left politics.

As Gordon Brown’s tribulations mount, prompting amongst other things a reappraisal of his time at the Treasury, it is perhaps not surprising that even his most widely celebrated policy innovation – the “independent” central bank – should come under scrutiny. What is even more surprising, however, is why it was almost universally believed to be such a good thing in the first place.

The independent central bank was of course seen as an important weapon in the monetarist armoury. Monetarism is, after all, an expression of an extreme belief in the infallibility of the market – an article of faith for New Labour. Governments cannot be allowed to intervene since any such intervention will frustrate the market’s unfettered operation. What could be more natural, therefore, than to ensure that elected politicians are excluded from the formulation of monetary policy?

This is not, of course, quite how the independent central bank is presented to the public. The public have been sold on the idea that an independent bank is necessary if inflation is to be controlled, since politicians cannot be trusted to take the hard decisions that are necessary. But a careful study of the recent history of the battle against inflation suggests that it has very little to do with the independence or otherwise of the central bank. Inflation in the 1970s was a world-wide phenomenon, but by the mid-1980s – reflecting world conditions – it had largely been brought under control. The claim that an independent central bank is essential if inflation is to be controlled in any case looks less convincing today, with inflation running at over 4%.

But what is really remarkable about an independent central bank is that it is a major step away from democratic government. The price we pay, in other words, is not just an economic one, but is a significant weakening of our democratic institutions. What is identified as the over-riding issue in economic policy is now the exclusive preserve, not of elected governments, but of unaccountable officials.

How this has been accepted is even more of a mystery when one considers that the “independent” central bank is in no sense objective or neutral. It is a bank. Its main clients are banks. It is staffed by bankers. It can be relied upon always to put the interests of the financial establishment ahead of those operating in the rest of the economy. Our economic policy is, in a very real sense, made in the interests of the holders of existing assets rather than of those who live and work in the real economy where new wealth is created.

This bias seems more extreme the longer one looks at it. Not only has the Monetary Policy Committee ensured that the productive sector should bear the burden of its counter-inflationary measures. It seems also to have deliberately averted its gaze from the factor that really is the primary cause of inflation – the huge rise in bank lending.

How have we arrived at this remarkable situation? It is not surprising that the bankers themselves should support and welcome it. Economists, too, will naturally feel that the authority and credibility of their profession have been underpinned by this recognition that it is only the high priesthood that is competent to address these important issues.

But why have politicians so readily accepted this substantial diminution of their powers? The answer is that it is very convenient for politicians to be able to contract out the most difficult decisions they are faced with. How useful it has been for Ministers to be able to pin responsibility on the Bank and to claim that the travails of the economy are caused by the mechanistic workings of the market and of essential monetarist disciplines rather than actual policy decisions.

But is it not time that we reminded them of their responsibilities? If they want to exercise power in a democratic society, they should not be allowed to pick and choose which responsibilities they accept.

There is of course an important role for an effective central bank. A central bank is essential to maintain a proper prudential supervision of banks and of the financial sector more generally – something that has been sadly missing from the scene over recent years. A central bank will regulate and enable the banks to interact in an efficient way that benefits the economy as a whole. The central bank will be an important source of advice on financial matters. But none of this requires the central bank to be immune from challenge or that its actions should be free from debate and discussion, particularly when it is uniquely entrusted with the power to give expression to a narrow and bank-dominated view of the true purpose of economic policy.

The growing economic crisis demands that sacred cows should no longer be immune. Even in New Zealand, where the modern fashion for an “independent” central bank first surfaced, the debate is being re-opened. If we want an economy that more faithfully serves the interests of all of us, and not just those of a small self-interested minority, economic policy should be restored to the democratic arena.

Like so many others, I looked forward to Gordon Brown’s accession to Number Ten. Here, I thought, was the chance of breaking with the spin and superficiality of the Blair years. With Gordon, we would surely hear the authentic voice of Labour and welcome the end, even if it was not publicly acknowledged, of the New Labour project.

Why have those expectations been so comprehensively dashed? How did we get it so wrong? Why is Gordon’s leadership proving such an unmitigated disaster?

There is not one, but several answers to these questions. Those who saw in Gordon a mere technocrat, a bloodless (not to say desiccated!) calculating machine, may have had a point after all. Here, it seems, is a man who may live and breathe politics, but who is incapable of articulating what he feels about it. The more he talks of his “vision” the more arid it seems.

We can now see that his many critics may have been right in condemning him for being more comfortable with figures than with people. Those long years of apprenticeship in The Treasury may have been, perhaps, an amazing stroke of luck – providing him with the closeted comfort of doing his sums while never having to confront the real blood and guts world of real politics.

And how lucky he was in another sense. He inherited an economy that had been released from the bondage of the Exchange Rate Mechanism and which accordingly proceeded to out-perform our European competitors, saddled as they were with euro-driven centro-monetarism, by a comfortable margin. This was the era of the easy-credit property bubble. The tenant of Number 11 Downing Street needed to do no more than look and sound tough, and then sit back and garner the plaudits of those who reaped the profits – plaudits which hugely inflated an unearned reputation.

It may be that that reputation has always been much more substantial than was ever deserved. I have recently consulted my own memoir of the period when Gordon Brown as Shadow Chancellor insisted, even more fiercely than the Tory government, that the United Kingdom should remain within the ERM, come what may. I noted at the time that “it has always been a puzzle to me that people who make mistakes of such magnitude and reveal such a total inability to understand the issues of which they are supposed to be masters nevertheless sail serenely on, unscathed by any suggestion that they might not be up to the job.”

Gordon’s reputation as a successful Chancellor and a Prime Minister in waiting may, perhaps, always have been based on a soufflé of good fortune and complacent media who were content to go along with the myth rather than probe for the reality. And the Labour Party itself failed to meet its responsibilities as well.

When the time came to elect a successor to Tony Blair, the Party had its one chance to satisfy itself that the Brown reputation was justified. A leadership election would have provided a contest of ideas, of vision, of sheer political nous, which might have been enough to ring alarm bells.

It was with that goal in mind that I was prompted to stand against John Smith, another widely anointed successor to the leadership, in 1992. Unhappily, no one could be found in today’s Labour Party to undertake such a daunting but necessary task.

So, is Gordon – and his personal qualities or lack of them – solely to blame for the debacle? Certainly not. The tragedy for Gordon is that a career that was blessed for so long by extraordinary good fortune has now seen his luck turn big-time. His undoubted strengths might continue to have won the day but for two strokes of bad luck over which he has had little control.

The first is the bursting of the credit bubble and the consequent and threatening damage to the whole international banking sector and world economy. It could be argued that, as Chancellor for most of the relevant period, he cannot escape blame for what has happened, but – even so – there are many reputations other than his that must, in the light of what we now know, be reviewed even more savagely.

The second is that he is not, in reality, a first-term Prime Minister. The Blair-Brown duo is so well-established in the public mind that Gordon has not had the luxury of a fresh start and fresh hopes for his government. The failures of the Blair government, and the disenchantment not only with Labour politics but with a politics as a whole, are Gordon’s failures as well. His long-time friend and rival has had the last laugh. The keys to Number Ten came enclosed in a poison chalice.